Europe's Markets Lose Ground

By

Simon Kennedy And

Andrea Tryphonides

Updated June 23, 2011 1:24 p.m. ET

European stocks slumped and the euro weakened as a downbeat outlook for the U.S. economy weighed heavily, intervention in oil markets surprised and disappointing economic data from around the world spurred investors to seek out safe harbors.

The Stoxx Europe 600 index shed 1.4% to 264.31, having touched 263.71, the lowest point since March. The Dow Jones Industrial Average fell 1.6% to 11919.06 at midday.

Figures from China showed manufacturing activity fell to the slowest rate of expansion in 11 months, while private-sector growth across the bloc of 17 euro-using nations was the weakest since September 2009, and U.S. initial jobless claims were higher than expected.

Worries about sovereign debt on the Continent remain at the forefront of investors' minds ahead of a meeting of European Union leaders in Brussels. Markets are likely to remain on edge until a Parliament vote in Athens next week on further austerity measures, said
Joshua Raymond,
strategist at City Index. The Greek ASE Composite index fell 2.3%.

And members of the International Energy Agency said they would release 60 million barrels of oil to ease prices, which sent the price of Nymex crude to below $90 a barrel.

'Cyclical' stocks—or those sensitive to economic events, political risks and the business cycle—were battered most. The Stoxx Europe 600 banks index fell 2.6% as investors continued to fret over lenders' exposure to Greece's sovereign debt problems. Also, the president of the European Central Bank warned that instability risks in the European banking system were extremely high.

Ocado Group
slumped 5.2%. J.P. Morgan Cazenove downgraded its rating on the online supermarket to neutral from overweight, saying capacity constraints, among other factors, are likely to hold back the stock.

In Frankfurt, the DAX fell 1.8% to 7149.44. Drug and chemicals concern
Bayer
sank 6.3% after
Pfizer
and
Bristol-Myers Squibb
reported a successful trial of their Eliquis blood thinner. Bayer is developing a blood thinner with
Johnson & Johnson
.
Jefferies International analysts said that, at face value, the trial data suggest Eliquis has a "superior profile" to Bayer and JNJ's Xarelto.

In Paris, the CAC-40 shed 2.2% to 3787.79. Chip maker STMicroelectronics fell 5.5%. ST-Ericsson, the company's joint venture with
L.M. Ericsson
,
said reduced demand from some customers means it will take the joint venture longer to reach profitability. Ericsson fell 1.7%.

French banks fell, with
BNP Paribas
down 3.9% and Crédit Agricole down 3.8%.

Airbus parent EADS was the best performer, rising 0.8% after more orders from the likes of low-cost carrier AirAsia helped Airbus book $72.2 billion of orders and commitments over the course of the Paris Air Show.

Air France-KLM fell 3.4% after Credit Suisse Group cut its rating two notches to underperform from outperform, saying it expects "a significant earnings miss" for the airline in 2011.

The euro slumped to $1.4183 from $1.4355 late Wednesday in New York. The pound weakened to $1.5979 from $1.6073, the first move below $1.60 since April 1. The dollar moved to 0.8381 Swiss franc from 0.8393 franc.

Elsewhere, light, sweet, crude for August delivery pared losses but was still sharply lower. The contract was down $4.34 or 4.5% to $91.07 on the New York Mercantile Exchange in early afternoon trading in New York. The most actively traded August gold contract fell $33.90, or 2.2%, to $1519.50 a troy ounce on the Comex division of Nymex.

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